DCIT C.C. 25, MUMBAI V. SKIL INFRASTRUCTURE LTD, MUMBAI

ITA 3092/MUM/2009

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0281 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 07-01-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S KEMWAL LD
• Assessee Lawyers: J D MISTRI; S K MUTSADDI LD ARS
• Keywords: Business income; Fair market value
• Section: 45(2); 143(3); 115JB

Judgement Text

ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI SAKTIJIT DEY, JM AND SHRI MANOJ KUMAR AGGARWAL, AM ./I.T.A. NO.3092/MUM/2009 ( / ASSESSMENT YEAR: 2005-06) DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 25 ROOM NO. 404 4 TH FLOOR,AAYKAR BHAVAN M.K.ROAD MUMBAI 400 020 / VS. SKIL INFRASTRUCTURE LIMITED (CONSEQUENT TO AMALGAMATION WITH HORIZON INFRASTRUCTURE LTD.) 534/535, VYAPAR BHAVAN 49, P.D. MELLO ROAD CARNAC BUNDER MUMBAI 400 009 ! ./ ./PAN/GIR NO. AABCS-7689-F ( !# /APPELLANT ) : ( $%!# / RESPONDENT ) !# / APPELLANT BY : S.S. KEMWAL, LD. CIT DR $%!# / RESPONDENT BY : J.D. MISTRI & S.K. MUTSADDI LD. ARS / DATE OF HEARING : 27/04/2017 / DATE OF PRONOUNCEMENT : 07/06/2017 ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 2 / O R D E R PER MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. THE CAPTIONED APPEAL BY REVENUE FOR ASSESSMENT YEAR [AY] 2005-06 ASSAILS THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL- V [CIT(A)], MUMBAI DATED 12/03/2009 QUA COMPUTATION OF BOOK PROFITS U/S 115JB CONSEQUENT TO CAPITAL GAINS ON SALE OF CE RTAIN SHARES. THE MAIN ISSUE UNDER DISPUTE IS ADJUSTMENT TO BOOK PROF ITS U/S 115JB VIS-- VIS CONVERSION OF CERTAIN INVESTMENTS INTO STOCK-IN -TRADE AND CAPITAL GAINS / BUSINESS INCOME/LOSS ARISING THERE-FROM AT THE TIME OF SALE. 2. AS PER RECORD, THE ASSESSEE NAMELY SKIL INFRASTRUCTURE LIMITED HAS AMALGAMATED WITH HORIZON INFRASTRUCTURE LTD. W.E.F. 01/04/2011 AS PER ORDER OF HONBLE BOMBAY HIGH COURT DATED 27/09/ 2013, A COPY OF WHICH HAS BEEN PLACED BEFORE US. THEREAFTER, HORIZON INFRASTRUCTURE LTD. HAS CHANGED ITS NAME W.E.F. 22/01/2014 TO SKIL INFRASTRUCTURE LTD. (CIN L36911MH1983PLC178299) VIDE FRESH CERTIFICATE OF INCORPORATION CONSEQUENT UPON CHANGE OF NAME ISSUED BY REGISTRAR OF COMPANIES, MAHARASHTRA DATED 22/01/2014 WHICH IS TAKEN ON RECO RD. WITH THIS BACKGROUND, WE PROCEED FURTHER IN THE MATTER. 3. BRIEFLY STATED THE ASSESSEE, BEING RESIDENT CORPORATE ASSESSEE , ENGAGED IN THE BUSINESS OF INFRASTRUCTURE DEVELOPMENT AND TECHNICAL CONSULTANCY RELATING TO INFRASTRUCTURE DEVELOPMENT, WAS ASSESSED U/S 143(3) AT LOSS OF RS.208.75 CRORES UNDER NORMAL PRO VISIONS AND AT BOOK PROFIT OF RS.141.63 CRORES U/S 115JB AS AGAINST RET URNED LOSS OF RS.209.33 CRORES FILED BY THE ASSESSEE IN 29/10/200 5. ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 3 4. THE ASSESSEE CLAIMED LONG TERM CAPITAL GAINS AS EXEMPT U/S 10(23G) FOR RS.343.97 CRORES ON SALE OF 5,11,27,400 NUMBER OF SHARES OF GUJARAT PIPAVAV PORT LTD. [GPPL]. THESE SHARES WERE EARLIER HELD AS INVESTMENT BUT CONVERTED FROM INVESTMENT TO STOCK-IN-TRADE IN AY 2002- 03 AT FAIR MARKET VALUE OF RS.80/- PER SHARES AS AG AINST AVERAGE COST OF RS.12.72 PER EQUITY SHARES. THE SURPLUS THUS ARISIN G FOR RS.67.28 PER EQUITY SHARE AGGREGATING TO RS.343.97CRORES WAS CRE DITED TO CAPITAL RESERVE ACCOUNT IN AY 2002-03 AT THE TIME OF CONVERSION. TO SUPPOR T THE MARKET VALUE OF RS.80/- IN THE YEAR OF CONVERSION, THE ASSESSEE EXPLAINED THAT THE SHARES WERE PURCHASED AT THE SAM E PRICE BY UNIT TRUST OF INDIA & NEW YORK LIFE INTERNATIONAL INDIA FUND MAURITIUS LLC. THE COPIES OF AGREEMENT FOR PURCHASE OF SHARES OF G PPL BY UTI AND NEW YORK LIFE WERE FURNISHED TO AO. 5. THE SHARES IN QUESTION WERE SOLD DURING IMPUGNED AY I.E. ON 30/03/2005 @ RS. 40/- PER SHARE TO CONSORTIUM OF IN VESTORS LED BY APMT MAURITIUS LTD. RESULTING INTO BUSINESS LOSS OF RS.40/- PER SHARE AGGREGATING TO RS.204.50 CRORES WHICH WAS DEBITED T O CAPITAL RESERVE ACCOUNT BUT CLAIMED AS BUSINESS LOSS IN THE COMPUTATION OF INCOME. 6. THE LONG TERM CAPITAL GAINS CLAIMED EXEMPTED U/S 10(23G) WAS FOUND ACCEPTABLE DURING THE ASSESSMENT PROCEEDINGS IN TERMS OF STATUTORY PROVISIONS AND CBDT CIRCULAR NO. 772 DATE D 23/12/1998. 7. HOWEVER, THE LD. AO PROPOSED TO INCLUDE THE EXEM PT LONG TERM CAPITAL GAINS OF RS.343.97 CRORES FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB WHICH WAS OBJECTED TO BY THE ASSESSEE ON THE GROUND THAT THE CAPITAL GAINS, WHATEVER ACCRUED TO THE ASSESSEE IN THE IMPUGNED AY, WAS RECORDED IN THE YEAR OF CONVERSION I.E. AY 2002-03 ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 4 ITSELF AND CARRIED TO CAPITAL RESERVE ACCOUNT HAVING REGARD TO THE PROVISIONS OF PART III OF SCHEDULE VI TO THE COMPAN IES ACT, 1956. FURTHER, BIFURCATION OF GAINS / LOSSES WAS DONE ONLY IN ACCO RDANCE WITH THE PROVISIONS OF SECTION 45(2). THE LONG TERM CAPITAL GAINS SO ARRIVED WAS EXEMPT U/S 10(23G) WHICH LED TO THIS PECULIAR SITUA TION WHERE THERE WAS NO CREDIT TO PROFIT & LOSS ACCOUNT AND YET THERE WA S A LONG TERM CAPITAL GAIN EXEMPT U/S 10(23G) WHICH WAS ONLY DUE TO THE P ROVISIONS OF SECTION 45(2). FURTHER, UPON CONJOINT READING OF PR OVISO TO SECTION 10(23G) & SECTION 115JB(2), NO ADJUSTMENT WAS CALLE D FOR THIS ITEM. HOWEVER, NOT CONVINCED, LD. AO ADDED THE AMOUNT OF CAPITAL GAINS OF RS.343.97 CRORES TO BOOK PROFITS U/S 115JB AND REDU CED THE BUSINESS LOSS OF RS.204.50 CRORES FROM THE SAME AND ARRIVED AT ADJUSTED BOOK PROFITS OF RS.141.63 CRORES. 8. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER BEFOR E LD. CIT(A) SUCCESSFULLY VIDE IMPUGNED ORDER DATED 12/03/2009 A ND RAISED SIMILAR PLEAS AND PLACED RELIANCE ON THE JUDGMENT OF APEX C OURT IN APOLLO TYRES LTD. VS. CIT [255 ITR 273] TO CONTEND THAT AO HAD NO POWER TO MAKE ADJUSTMENTS IN THE PROFIT & LOSS ACCOUNT PREPARED I N ACCORDANCE WITH PART II & PART III OF SCHEDULE VI OF THE COMPANIES ACT. AFTER CONSIDERING THE STATUTORY PROVISIONS, SUBMISSIONS MADE BY THE A SSESSEE AND MATERIAL ON RECORD, LD. CIT(A) WAS CONVINCED WITH T HE ARGUMENTS OF THE ASSESSEE AND DECIDED THE ISSUE IN FAVOR OF ASSESSEE WITH FOLLOWING OBSERVATIONS:- 2.3. I HAVE CONSIDERED THE ASSESSMENT ORDER AND T HE SUBMISSIONS OF THE APPELLANT. LOOKING INTO THE RELEVANT PROVISIONS OF SECTION 10( 23G) AND 115JB OF THE ITA, THE PROVISIONS OF THE COMPANIES ACT, 1956, THE PRINCIPL ES OF INTERPRETATION AND THE FACTS BROUGHT ON RECORD, I AGREE WITH THE APPELLANT THAT THE LONG TERM CAPITAL GAIN CANNOT BE INCLUDED FOR THE PURPOSE OF BOOK PROFIT. TO THIS END, IN THE FIRST PLACE, I ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 5 FIND THAT THE ASSESSING OFFICER HAS PLACED A LOPSID ED EMPHASIS ON THE PROVISIONS OF SECTION 10(23G) OF THE ITA AT THE EXPENSE OF THE CO RRESPONDING PROVISIONS OF SECTION 115JB OF THE ITA PARTICULARLY, THE MEANING OF THE T ERM BOOK PROFIT AS ENVISAGED IN THE EXPLANATION TO THE SECTION. AS MAY BE SEEN, THI S EXPLANATION DELINEATES BOOK PROFIT TO MEAN THE NET PROFIT AS SHOWN IN THE PRO FIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR UNDER SUB-SECTION(2). THIS WOULD MEAN, THE FOUNDATION OF THE BOOK PROFIT AS ENVISAGED IN SECTION 115JB OF THE IT A IS THE NET PROFIT OF THE RELEVANT PREVIOUS YEAR AS SHOWN IN THE PROFIT & LOSS ACCOUNT OF THAT YEAR. PITTED AGAINST THIS TEST, I FIND THAT THE LONG TERM CAPITAL GAIN ADDED TO THE BOOK PROFIT BY THE ASSESSING OFFICER IS NOT A COMPONENT OF THE PROFIT & LOSS ACCOUNT OF THE YEAR ENDED 31.03.2005. THIS IS SO BECAUSE THE LONG TERM CAPIT AL GAIN ALREADY STANDS CREDITED TO THE CAPITAL RESERVE ACCOUNT FOR THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR 2002-03 AS THE CONVERSION OF THESE SHARES INTO STOCK IN TRADE TOOK PLACE DURING THIS PREVIOUS YEAR AND THIS ACCOUNTING WAS ALSO DON E IN TERMS OF SCHEDULE VI OF THE COMPANIES ACT. ACCORDINGLY, I FIND THAT THE LONG TE RM CAPITAL GAIN IN QUESTION NOT BEING PART OF THE NET PROFIT AS SHOWN IN THE PROF IT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR UNDER SUB-SECTION(2).. CANNOT BE A SUBJECT MATTER OF ADJUSTMENT U/S115JB OF THE ITA. AS MAY BE SEEN, IN THIS CASE, THE LONG TERM CAPITAL GAINS ARISING OUT OF THE PROVISIONS OF THE SECTION 45(2) OF THE ITA LED TO A SITUATION WHERE AS PER ACCOUNTS THE SURPLUS ON CONVERSION WAS RELAT ABLE TO THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-2003, ALTHOUGH IN TERMS OF SECTION 45(2) OF THE ITA, IT HAD TO BE OFFERED FOR TAX IN THE PRESEN T YEAR UNDER CONSIDERATION. THIS REQUIRED A CUMULATIVE INTERPRETATION OF THE AMENDME NTS IN SECTION 10(23G) AND SECTION 115JB OF THE ITA WHICH THE ASSESSING OFFICE R FAILED TO DO. IN THIS CONTEXT, I FIND THAT TAKING A CUE FROM THE RELEVANT AMENDMENT IN SECTION 10(23G) OF THE ITA, THE CORRESPONDING AMENDMENT IN SUB CLAUSE (II) OF T HE EXPLANATION TO SECTION 115JB OF THE ITA ALSO HAD TO BE SIMULTANEOUSLY TAKEN INTO RECKONING. THE ASSESSING OFFICER HAS OMITTED TO DO THIS. FROM THIS PERSPECT IVE, AS POINTED OUT BY THE APPELLANT, I FIND THAT SUB CLAUSE (II) OF THE EXPLA NATION TO SECTION 115JB OF THE ITA DOVETAILS THE PROVISIONS OF SECTION 10(23G) IN A MA NNER THAT IT TALKS OF THE RETENTION OF SECTION 10(23G) INCOME IN THE PROFIT & LOSS ACCO UNT ONLY IF SUCH AMOUNT IS CREDITED TO THE PROFIT & LOSS ACCOUNT. IT MAY ALS O BE NOTED THAT THE SUB CLAUSE (II) TALKS OF REDUCTION OF A NUMBER OF ITEMS OF INCOMES FROM THE BOOK PROFIT IF THEY STAND CREDITED TO THE PROFIT & LOSS ACCOUNT WITH THE ONL Y EXCEPTION IN THE CASE OF SECTION 10(23G) INCOME, WHICH IS STIPULATED TO BE RETAINED AND NOT REDUCED. PITTED AGAINST THIS TEST, IT MAY BE SEEN THAT THE LONG TERM CAPITA L GAIN IN QUESTION HERE IS NOT POSSIBLE TO BE RETAINED IN THE BOOK PROFIT FOR THE SIMPLE BASIC REASON THAT IT IS NOT CREDITED TO THE PROFIT & LOSS ACCOUNT. IT IS OBVIOU S, WHAT IS NOT THERE IS NOT POSSIBLE TO BE RETAINED. THE ASSESSING OFFICER HAS DONE THI S WITHOUT ANY CORRESPONDING ENABLING PROVISION. IN THIS RESPECT, AS POINTED OUT BY THE APPELLANT, I FURTHER FOUND THAT THE LONG TERM CAPITAL GAIN IN QUESTION IS ALSO NOT INCLUDIBLE IN THE PROFIT & LOSS ACCOUNT OF EITHER THE ASSESSMENT YEAR 2002-2003 OR 2005-2006. THIS IS IN TERMS OF SCHEDULE VI OF THE COMPANIES ACT, IN WHICH, SURPLU S ON THE VALUATION OF ASSETS AND LIABILITIES IS CONSIDERED AS CAPITAL RESERVE. SEE N IN THIS BACKDROP, I FIND THAT THE APPELLANT HAD RIGHTLY CREDITED THE SURPLUS ON ACCOU NT OF CONVERSION OF THE SHARES INTO THE CAPITAL RESERVE ACCOUNT IN THE PREVIOUS YEAR RE LEVANT TO THE ASSESSMENT YEAR 2002-03. FOR THE A.Y. 2005-06 ALSO, THE SURPLUS CO ULD NOT HAVE BEEN A PART OF THE PROFIT & LOSS ACCOUNT FOR THE RELATED PREVIOUS YEAR BECAUSE THE SURPLUS ACTUALLY ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 6 PERTAINED TO THE PREVIOUS YEAR RELEVANT TO THE ASSE SSMENT YEAR 2002-03. CLUED INTO THE FOREGOING, I FIND THAT THE LONG TERM CAPITAL GA IN IN QUESTION CANNOT BE A SUBJECT MATTER OF ADJUSTMENT IN SECTION 115JB OF THE ITA AS IN TERMS OF THE SUB CLAUSE (II) OF EXPLANATION TO THE SECTION 115JB OF THE ITA, THE LO NG TERM CAPITAL GAIN IS FOUND TO BE OUTSIDE ITS AMBIT BY VIRTUE OF BEING NOT INCLUDI BLE IN THE PROFIT & LOSS ACCOUNT. 2.3.1. IN THIS CONTEXT, I FIND THAT SUB SECTION (2 ) OF SECTION 115JB OF THE ITA SPECIFICALLY STIPULATES THAT FOR THE PURPOSES OF TH IS SECTION, A COMPANY HAS TO PREPARE ITS PROFIT & LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI OF TH E COMPANIES ACT, 1956. FROM THIS, IT WOULD FOLLOW THAT ONCE THE ACCOUNTS ARE PREPARED AS PER SCHEDULE VI OF THE COMPANIES ACT, THE PROFIT ARISING OUT OF SUCH ACCOU NT WOULD BE THE STARTING POINT FOR COMPUTATION OF THE PROFIT U/S 115 JB OF THE ITA AND THAT ONLY THE ADJUSTMENTS SANCTIONED IN EXPLANATION TO THE SECTION 115JB CAN BE MADE TO THE PROFIT COMPUTED IN ACCORDANCE WITH SCHEDULE VI OF THE COMPANIES ACT . PLACED ON THESE TOUCHSTONES, I FIND THAT THE BOOK PROFITS IN TERMS OF THE EXPLANATION CAN BE INCREASED ONLY BY THE AMOUNTS MENTIONED IN CLAUSES (A) TO (H) OF THE EXPLANATION TO SECTION 115JB. THE INCLUSION OF THE LONG TERM CAPITAL GAIN BY THE ASSESSING OFFICER DOES NOT FIGURE IN THESE CLAUSES. IN SIMILAR VEIN, IT M AY BE SEEN THAT THE BOOK PROFIT CAN BE REDUCED BY THE AMOUNTS MENTIONED IN CLAUSES (I) TO (VIII) OF THE EXPLANATION. PLACED ON THIS TOUCHSTONE, I FIND THAT THE ADJUSTME NT MADE IS NOT IN TERMS OF ANY OF THE ITEMS LISTED IN THE EXPLANATION I.E, EITHER CLA USES (A) TO (H) OR CLAUSES (I) TO (VIII). IN ADDING THE LONG TERM CAPITAL GAINS TO BOOK PROFI T, THE ASSESSING OFFICER HAS IMPORTED A SURPLUS RELATABLE AN EARLIER YEAR (THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2002-03) TO THE PROFIT & LOSS ACCOU NT FOR THE ASSESSMENT YEAR 2005-06 WITHOUT THERE BEING ANY ENABLING PROVISION EITHER IN SECTION 115JB OF THE ITA OR SCHEDULE VI OF THE COMPANIES ACT. IN THIS R ESPECT, AS RELIED UPON BY THE APPELLANT, THE DECISION OF THE HONBLE SUPREME COUR T IN THE CASE APOLLO TYRES(SUPRA) BEARS SPECIAL MENTION. IN THIS DECISI ON, THE HONBLE SUPREME COURT HAS SPECIFICALLY HELD THAT THE ASSESSING OFFICER DO ES NOT HAVE THE SANCTION TO GO BEHIND THE NET PROFIT SHOWN IN THE PROFIT & LOSS AC COUNT EXCEPT TO THE EXTENT PROVIDED IN EXPLANATION TO SECTION 115 J OF THE ITA . THIS ALSO STANDS FOLLOWED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE KINETIC MOTOR S COMPANY LTD. VS. DCIT(SUPRA). AS I NOTE, SO LONG AS BOOK PROFIT HAS BEEN DRAWN AS PER THE COMPANIES ACT, IT CAN BE SUBJECTED TO ADJUSTMENT ON LY IN TERMS OF THE EXPLANATION TO SECTION 115JB OF THE ITA AND THE ADJUSTMENT IN QUES TION HERE IS AGAINST THIS BASIC PREMISE. IF AT ALL, THE SECTION 10(23G) INCOME COUL D ONLY HAVE BEEN RETAINED IN THE BOOK PROFIT IN TERMS OF CLAUSE (II) TO EXPLANATION OF SECTION 115JB OF THE ITA ONLY IF IT STOOD CREDITED TO THE PROFIT & LOSS ACCOUNT. AS DIS CUSSED ABOVE, THIS IS ALSO NOT THE CASE HERE. THE ENABLING PROVISION FOR ALLOWING RET ENTION OF SECTION 10(23G) INCOME CANNOT BE INTERPRETED AS ENABLING PROVISION FOR MAK ING AN ADDITION TO THE BOOK PROFIT FROM THE STATEMENT OF INCOME, OF AN ITEM, WHICH IS LEGITIMATELY OUTSIDE THE BOOK PROFIT AND ALSO NOT EVEN A TRANSACTION OF THAT YEAR . 2.3.2 I ALSO FIND THAT THE UNIQUE NATURE OF LONG TERM CAPITAL GAIN ARISING OUT OF OPERATION OF SECTION 45(2) OF THE ITA ALSO SHOULD H AVE BEEN FACTORED BY THE ASSESSING OFFICER. THE PECULIAR NATURE OF THE INCOM ES ARISING OUT OF SECTION 45(2) OF THE ITA CREATES A SITUATION WHERE THE PERIOD OF ACC OUNTING TREATMENT OF THE CONVERSION GIVEN IN THE ACCOUNTS IS DIFFERENT FROM THE PERIOD IN WHICH LONG TERM CAPITAL GAINS BECOMES TAXABLE. IT IS BECAUSE OF TH IS THAT THE APPELLANT DID NOT HAVE ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 7 TO CREDIT THE SURPLUS ARISING OUT OF THE CONVERSION TO THE PROFIT AND LOSS ACCOUNT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION. ON CE THIS HAPPENED, THE LONG TERM CAPITAL GAIN BEING RELATABLE TO AN EARLIER YEA R WENT OUTSIDE THE PURVIEW OF SECTION 115JB OF THE ITA FOR THE ASSESSMENT YEAR UN DER CONSIDERATION. HAD THE LONG TERM CAPITAL GAIN ARISEN U/S 45(1) OF THE ITA, ITS DIRECT INCIDENCE WOULD HAVE BEEN IN THE CONTEMPORANEOUS YEAR AND ACCORDINGLY SE CTION 10(23G) AND SUB CLAUSE (II) OF EXPLANATION TO SECTION 115JB OF THE ITA WOU LD HAVE BEEN IN HARMONY. AS AGAINST THIS, IN THE APPELLANTS CASE, THIS HARMONY IS MISSING SINCE IN ITS CASE, WHEREAS THE LONG TERM CAPITAL GAIN U/S 45(2) HAD IT S ACCOUNTING IMPLICATIONS DURING THE ASSESSMENT YEAR 2002-03, IT HAD ITS CAPI TAL GAIN INCIDENCE DURING THE ASSESSMENT YEAR 2005-06. IN THIS RESPECT, THE APPE LLANTS RELIANCE ON THE DECISIONS ON INTERPRETATION OF STATUTES IS APT AND APPROPRIAT E. AS MENTIONED BY THE HONBLE SUPREME COURT IN THE CASE K.P VERGHES VS. ITO (SUPR A) STATUTORY PROVISION MUST BE SO CONSTRUED, IF POSSIBLE, THAT ABSURDITY AND MISCH IEF MAY BE AVOIDED. SIMILARLY, IN THE CASE POLESTAR ELECTRONICS (P) LTD. (SUPRA), IT HAS BEEN CATEGORICALLY EMPHASIZED THAT INTERPRETATION OF STATUTES SHOULD BE CONSTRUED ACCORDING TO THE PLAIN NATURAL MEANING OF ITS LANGUAGE AND THAT NO WORDS ARE TO BE ADDED OR MODIFIED UNLESS IT IS PLAINLY NECESSARY TO DO SO. THE ESSENCE OF THE DEC ISIONS RELIED UPON BY THE APPELLANT IS THAT INTERPRETATION OF STATUTES SHOULD BE HARMONIOUSLY DONE SO THAT INTERPRETATION IS RECONCILABLE WITH THE REST OF THE STATUTES. IN THIS CASE, THE ASSESSING OFFICER HAS NOT RECONCILED THE PROVISIONS OF SECTIO N 10(23G) WITH THE CORRESPONDING PROVISIONS OF SECTION 115JB OF THE ITA. 2.3.3 IN THE LIGHT OF THE FOREGOING, I FIND THAT THERE IS NO CASE FOR ADDITION OF THE LONG TERM CAPITAL GAIN OF RS.343,97,14,143/- TO THE BOOK PROFIT U/S 115JB OF THE ITA. THE ADDITION IS DELETED AND THE GROUND OF APP EAL IS ALLOWED. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 9. THE LD. DEPARTMENTAL REPRESENTATIVE [DR] DREW OU R ATTENTION TO THE PROVISIONS OF SECTION 10(23G) AND CONTENDED THA T THE INCOME ARISING UNDER THESE PROVISIONS WAS CLEARLY INCLUDIBLE FOR T HE PURPOSE OF BOOK PROFITS U/S 115JB. FURTHER, NO ADJUSTMENT OF THIS INCOME W AS REQUIRED TO BE DONE IN TERMS OF EXPLANATION-1 TO SECTION 115JB. THEREFORE, THE ASSESSEE WAS UNDER AN OBLIGATION TO CREDIT THE SURP LUS TO PROFIT & LOSS ACCOUNT BUT FAILED TO DO SO AND THEREFORE, AO RIGHT LY ADDED THE SAME TO BOOK PROFITS U/S 115JB. 10. PER CONTRA, LD. AR PLACED RELIANCE ON THE FINDI NGS OF LD. CIT(A) AND RAISED SIMILAR CONTENTIONS AND EXPLAINED THAT T HE ASSESSEE ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 8 CONVERTED ITS INVESTMENTS INTO STOCK-IN-TRADE IN AY 2002-03 AS PER PREVAILING FAIR MARKET PRICE ON THE DATE OF CONVERS ION AND CREDITED THE NOTIONAL SURPLUS TO CAPITAL RESERVES ACCOUNT IN TERMS OF SCHEDULE VI TO THE COMPANIES ACT. THE REVENUE HAS ACCEPTED THE FAC TUM OF CONVERSION AND NOWHERE DISPUTED THE SAME. THE SAID SHARES WERE SOLD IN THE IMPUGNED AY AND THEREFORE, THE RESULTANT PROFIT / G AIN WAS TO BE BIFURCATED AS CAPITAL GAINS OR BUSINESS INCOME AS PER THE PROVISIONS OF SECTION 45(2) AND FOLLOWING THE SAME THE ASSESSE E HAS DONE SO. THE LONG TERM CAPITAL GAINS HAS BEEN FOUND TO BE EXEMPTED U/S 10(23G) BY THE REVENUE WHEREAS BUSINESS LOSS IS CLEARLY ALL OWABLE TO THE ASSESSEE IN TERMS OF STATUTORY PROVISIONS. THEREFOR E, WHATEVER ACCOUNTING METHODOLOGY HAS BEEN ADOPTED BY THE ASSE SSEE TO RECORD THE ABOVE TRANSACTIONS IN THE BOOKS OF ACCOUNTS, TH EY ARE IN CONSONANCE WITH THE REQUIREMENTS OF SCHEDULE VI OF THE COMPANI ES ACT. OUR ATTENTION HAS BEEN DRAWN TO THE FACT THAT STARTING POINT FOR COMPUTATION OF BOOK PROFIT U/S 115JB IS NET PROFIT AS SHOWN IN THE PROFIT & LOSS ACCOUNT WHICH IS TO INCREASED / DECREASED BY CERTAIN ITEMS AS GIVEN IN THE EXPLANATION 1 TO SECTION 115JB AND NOTHING MORE AND NOTHING LESS. THEREFORE, AO HAD NO POWER TO TINKER WITH THE FINAN CIAL STATEMENTS OF THE ASSESSEE WHICH HAS BEEN DRAWN AS PER THE REQUIREMEN TS OF SCHEDULE VI AS PER THE DECISION OF HONBLE SUPREME COURT IN APOLLO TYRES LTD. VS. CIT [255 ITR 273]. FURTHER, THE LONG TERM CAPITAL GAIN EARNED BY THE ASSESSEE COULD BE A PART OF BOOK PROFIT ONLY IF THE SAME WAS CREDITED TO THE PROFIT & LOSS ACCOUNT, WHICH WAS NOT THE CASE H ERE AND THEREFORE, LD. CIT(A) AFTER DUE APPLICATION OF MIND PROVIDED RELIE F TO THE ASSESSEE. ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 9 RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT VS. BISLERI SALES LTD. [ITA NO. 1436 OF 2013 DA TED 30/06/2015]. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RELEVANT MATERIAL ON RECORD INCLUDING CITED CASE LAWS. THE UNDISPUTED FACTS ARE THAT THE ASSESSEE HAS EARNED CERTAIN LONG TERM CAPITAL GAINS ON CERTAIN SHARES WHICH WERE CONVERTED FROM INVESTMENT INTO STOCK-IN- TRADE DURING AY 2002-03 BUT FINALLY SOLD IN IMPUGNED AY AND THEREFO RE, TAXABLE AS PER THE PROVISIONS OF SECTION 45(2). THE FAIR MARKET VA LUE OF RS.80/- PER SHARE ADOPTED BY THE ASSESSEE IN THE YEAR OF CONVER SION AND FINAL SALE VALUE OF RS.40/- PER SHARE EARNED BY THE ASSESSEE I S NOWHERE IN DISPUTE. THE RESULTANT SURPLUS UPON CONVERSION AMOU NTING TO RS.343.97 LACS HAS BEEN TRANSFERRED TO CAPITAL RESERVE ACCOUNT AS PER THE REQUIREMENT OF SCHEDULE VI OF THE COMPANIES ACT. 12. WE FIND THAT THE ABOVE FACTS HAVE GIVEN RISE TO A PECULIAR SITUATION IN THE IMPUGNED AY WHERE THE ASSESSEE, ALTHOUGH HAS EARNED CAPITAL GAINS, BUT NO CREDIT IS THERE IN THE PROFIT & LOSS ACCOUNT WHICH IS ONLY DUE TO THE PROVISIONS OF SECTION 45(2). 13. WE ALSO FIND THAT, WHATEVER ACCOUNTING METHODOL OGY HAS BEEN ADOPTED BY THE ASSESSEE TO RECORD THE ABOVE TRANSAC TIONS IN THE BOOKS OF ACCOUNTS, THEY ARE IN CONSONANCE WITH THE REQUIR EMENTS OF SCHEDULE VI OF THE COMPANIES ACT AND THE LD. AO, AS PER THE DECISION OF HONBLE SUPREME COURT IN APOLLO TYRES LTD. VS. CIT [SUPRA] COULD NOT TINKER WITH THE PROFITS SHOWN BY THE ASSESSEE AS PER THE COMPAN IES ACT. IN THE SAID JUDGMENT, THE APEX COURT CLEARLY HELD THAT THE ASSE SSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS MAINTAINED IN ACCORDANCE WITH THE PROVISIONS OF COMPANIES ACT, 1956 WHICH ARE DUL Y AUDITED AND ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 10 PASSED IN GENERAL BODY MEETING OF SHAREHOLDERS. IT WAS ALSO HELD THAT THE ASSESSING OFFICER HAS NO POWER TO DISTURB THE P ROFITS IN THE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN EXPLA NATION TO SECTION 115J. TO PUT IT DIFFERENTLY, THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEYOND THE NET PROFIT SHOWN IN T HE PROFIT & LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLAN ATION TO SECTION 115J AND THEREFORE, THE AO HAS TO ACCEPT THE PROFIT AS P ER THE PROFIT & LOSS ACCOUNT PREPARED IN ACCORDANCE WITH THE COMPANIES A CT AND THEREAFTER HE CAN PROCEED TO MAKE THE ADDITIONS AND DELETIONS SET OUT IN THE EXPLANATION TO SEC 115J OF THE ACT. HE CANNOT MAKE ANY ADJUSTMENT WHICH IS NOT PERMITTED UNDER EXPLANATION TO SEC 115 J OF THE ACT. THE INTERPRETATION AS ABOVE BY THE APEX COURT WILL EQUA LLY APPLY TO 115JB AS THOSE PROVISIONS ARE IDENTICAL TO PROVISIONS OF SEC 115J WITH CERTAIN VARIATIONS WHICH DOES NOT IN ANY WAY ALTER THE STAR TING POINT OF COMPUTATION OF BOOK PROFIT U/S 115J OF THE ACT. IT IS ALSO WELL SETTLED THAT THE MAT PROVISIONS ARE A COMPLETE CODE IN ITSELF AN D DEEMING FICTION TO BE CONSTRUED STRICTLY AND THEREFORE, WHATEVER COMPU TATIONS ARE TO BE MADE, THEY ARE TO BE MADE STRICTLY IN ACCORDANCE WI TH THE PROVISIONS PROVIDED IN THE CODE ITSELF. 14. THEREFORE, ON THE FACTS AND CIRCUMSTANCES, WE F IND THAT LD. CIT(A) CLINCHED THE ISSUE IN THE PROPER PERSPECTIVE AND PR OVIDED RELIEF TO THE ASSESSEE IN ACCORDANCE WITH THE LAW. THIS BEING SO, WE FIND NO REASON TO INTERFERE WITH THE SAME AND NO HESITATION IN DISMIS SING REVENUES APPEAL. BOTH THE ADJUSTMENTS OF CAPITAL GAINS AND BUSINESS LOSS DONE IN THE COMPUTATION OF MAT PROFITS U/S 115JB STANDS DELETED . THE LD. AO IS ITA NO.3092/M/2009 SKIL INFRASTRUCTURE LIMITED ASSESSMENT YEAR-2005-06 11 DIRECTED TO RE-COMPUTE BOOK PROFIT U/S 115JB IN TER MS OF OUR ABOVE ORDER. 15. IN NUTSHELL, THE REVENUES APPEAL STANDS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 07 TH JUNE, 2017. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 07.06.2017 SR.PS:- THIRUMALESH / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. $. , . , / DR, ITAT, MUMBAI 6. /0 / GUARD FILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI